Corporate strategy and the competitiveness of Korean electronics firms versus their Japanese and Chinese counterparts

ByHyung Oh Lee, Hyung-Deok Shin

This chapter examines the corporate strategies that the chaebol have used to compete against Japanese and Chinese rivals in the electronics industry, decomposing corporate strategy into several parts. Global strategy, or the choice of foreign markets in which to operate, has been a key advantage for the chaebol over Japanese competitors. Paradoxically, the large and stable Japanese home market has encouraged Japanese firms to focus on this market and avoid foreign markets, while the relatively smaller Korean market has forced the chaebol to expand and thrive in global markets. This chapter proposes that the chaebol would benefit by further globalizing their sales, production, and administrative functions such as research and development. Diversification strategy, or the choice of market segments, has also given the chaebol an advantage over Japanese competitors. The crucial change has been a shift from integral production, where non-standard components must be tightly and idiosyncratically integrated, to modular production, where highly standardized components can simply be mashed together. While this shift enabled less-experienced Korean firms to compete to beat established Japanese competitors, it has also negated the experience advantage that Korean firms have relative to up-and-coming Chinese firms. Vertical integration, or sourcing parts internally rather than externally, is an approach that is shared by the chaebol and Japanese competitors, while Chinese firms tend to be more open to outsourcing. Such openness is a potential competitive advantage for the Chinese, especially if externally sourced parts can be integrated as modules. Overall, this chapter highlights the strategic rationales for the chaebol to enter new international markets and industry segments, but also that the chaebol cannot do so without developing capabilities to better leverage foreigners and work with external partners.